IDEAS home Printed from https://ideas.repec.org/p/ven/wpaper/201630.html
   My bibliography  Save this paper

Risk Aversion: Differential Conditions for the Concavity in Transformed Two-Parameter Distributions

Author

Listed:
  • Fausto Corradin

    (Greta Associati, Venice)

  • Domenico Sartore

    (Ca' Foscari University of Venice, Department of Economics)

Abstract

The condition of Risk Aversion implies that the Utility Function must be concave. We take into account the dependence of the Utility Function on the return that has any type of two-parameter distribution; it is possible to define Risk and Target, that usually is the Expected value of the return, as a generic function of these two parameters. This paper determines the Differential Conditions for the definitions of Risk and Target that maintain the Concavity of the Expected Utility Function downward in the 3D space of the Risk, Target and Expected Utility Function. As a particular case, in the paper we discuss these conditions in the case of the CRRA Utility Function and the Truncated Normal distribution. Furthermore, different measures of Risk are chosen, as Value at Risk (VaR) and Expected Shortfall (ES), to verify if these measures maintain the downward concavity property for the Expected Utility Function.

Suggested Citation

  • Fausto Corradin & Domenico Sartore, 2016. "Risk Aversion: Differential Conditions for the Concavity in Transformed Two-Parameter Distributions," Working Papers 2016:30, Department of Economics, University of Venice "Ca' Foscari".
    • Handle: RePEc:ven:wpaper:2016:30
    as

    Download full text from publisher

    File URL: http://www.unive.it/pag/fileadmin/user_upload/dipartimenti/economia/doc/Pubblicazioni_scientifiche/working_papers/2016/WP_DSE_corradin_sartore_30_16.pdf
    File Function: First version, anno
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Fausto Corradin & Domenico Sartore, 2016. "Weak Dependence of CRRA on Standard Deviation in the Case of Truncated Normal Distribution of Returns," Working Papers 2016:18, Department of Economics, University of Venice "Ca' Foscari".
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fausto Corradin & Domenico Sartore, 2020. "Risk Aversion: Differential Conditions for the Iso-Utility Curves with Positive Slope in Transformed Two-Parameter Distributions," Advances in Decision Sciences, Asia University, Taiwan, vol. 24(3), pages 142-217, September.
    2. Fausto Corradin & Domenico Sartore, 2020. "Risk Aversion: Differential Conditions for the Iso-Utility Curves with Positive Slope in Transformed Two-Parameter Distributions," Advances in Decision Sciences, Asia University, Taiwan, vol. 24(3), pages 142-217, September.

    More about this item

    Keywords

    Concavity; CRRA Utility Function; Expected Utility Function; Expected Shortfall; Differential Conditions; Quadratic Utility Function; Standard Deviation; Transformation Parametric Functions; Truncated Normal Distribution;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ven:wpaper:2016:30. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Geraldine Ludbrook (email available below). General contact details of provider: https://edirc.repec.org/data/dsvenit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.